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The embattled cryptocurrency LUNA plummeted below a penny Thursday, as the Terra protocol continued to mint new units to meet redemption demand for its flailing UST stablecoin, which remains far from its intended one-to-one US dollar peg.
As the supply expands, the percentage of LUNA staked with validators shrunk, which created a new risk: a governance attack.
For the entire chain — and all its assets — to be secure, at least a third of the LUNA must be staked to honest validators that are processing transactions.
There are still 2.4 billion UST locked on the Anchor protocol and about $279 million in other staked assets, mostly bonded ether. If two-thirds of the LUNA were to be bought up on the cheap and staked to malicious validators, all those assets could be at risk — and it would take just a few million dollars’ worth of LUNA to take over the chain validation.
Therefore, the validator community opted to simply bring the chain’s block production to a coordinated halt, so as to execute an emergency upgrade that disables LUNA delegation.
The Terra blockchain was officially halted at a block height of 7603700.https://t.co/squ5MZ5VDK
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.
According to the official Twitter account, the network will then be restarted.
The LUNA supply expanded from 1 billion a week ago, to some 40 billion by the time the chain was halted, the consequence of the protocol’s unceasing effort to restore the hapless UST peg.
Meanwhile, a governance proposal put up for a vote Thursday seeks to burn around 1 billion UST currently held in a community pool smart contract, plus an additional 371 million UST provided as cross-chain incentives on Ethereum, reducing the UST supply overhang by about 11%.
This is a breaking story. It will be updated.
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